Hazards That Relate to Finance and Mortgage

admin | December 6, 2012

In mortgage and finance, there are many hazards that people need to be aware of. These hazards can and will affect you if the pros and cons have not been thought out all the way through.

The hazards are not just for the buyer or the seller, but finance and mortgage hazards can affect both parties. Everyone that is thinking about buying a home or is already in the process of buying a home needs to think about some essentials that may end up saving him a great deal of money during the time of purchase as well as in the future.

Let’s take a close look at some of the basic steps you need to walk-through in order to avoid any unnecessary hassle.

The Purchasing Power

It is a wonderful thing when a person can exercise his desire to purchase a home. The potential buyer needs to be aware that purchasing home is not always a happy and easy process.

There are things that a potential buyer needs to know about before he takes the initiative of buying a home. Make sure that the house that you are looking into purchasing is affordable. The way that you can easily find out if the potential buyer can afford a home is to multiply your gross annual household income by 2.5.

If the potential buyer’s household makes $50,000 a year, then he can afford a house that is going to cost him no more than $125,000. The cost of the house including any taxes and closing cost should also be factored into that price. That will give the potential buyer an understanding of what kind of house he can buy.

The best way to gain purchasing power is to go and get it pre-approved from a financial institution. By using this technique, a potential buyer is equipping himself with the leverage of real buying power.

Beware of Seller Financing

Seller financing can possibly land you in a lot of unnecessary heartache. Seller financing is when a seller decides to accept money from the buyer in the form of payments towards the price of the home.

Upon completion of the payments that had been arranged, the seller would then hand over the house to the buyer. There is also a possibility that the seller may run across a time during when the buyer becomes unable to pay and the seller will then have to arrange for the buyer to be evicted.

To avoid this altogether, it would be wise to have the buyer get financed through the bank so that you can get your money at the time of completion of the purchase.

Reverse Mortgage Option

Applying for a particular kind of home loan called a reverse-mortgage means asking your lender to give you up to a certain percentage of your home’s equity in ready cash.

You can use that money to help you during your retirement in the event that you have a fixed income that won’t cover all of your expenses. You can also use reverse loan money to simply make your retirement more comfortable, since there are no restrictions on how you can spend the money.

How a reverse mortgage works is that the loan will never come up due until you, the person who requested the loan, move out of the home or die. However, as the loan requester, you have the option to pay some or all of the loan back at any time.

The Second Mortgage Mistake

People may think that it is a good idea to get a second mortgage on their house. They see the opportunity to get a loan and pay off some bills. They then again decide to take out a loan on their property before even paying off the first loan.

This practice actually overburdens the home owner while depleting his existing equity. Their interest rates can spike up and if there is a problem with the housing market, they have a greater potential of losing value on their house and even going through foreclosure.

The above things work as basics if you really want to step into the world of mortgage and financing. No matter whether you are in the place of a buyer or seller, the end results can be horrendous if you are not aware about the procedures and working rules.

Author Box:

Tim is an expert in financial advice and mortgages. His urn of experience extends to provide genuine services to the people who seek a fortune makeover. May it be a natural hazard disclosure report or mutual agreement from both parties, you can always contact him any time possible.